Forex Dictionary Terms

Elliot Wave Theory

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Definition – What does Elliot Wave Theory mean?

Elliot wave theory is a style of technical analysis that was popularized by Ralph Elliott. Initially created for the stock market, Elliot wave theory posits that assets follow a pattern of waves. That is, when you chart the advances and declines in an assets value, you are left with a formation that can be identified and separated into waves.

ForexTerms explains Elliot Wave Theory

Because of its technical nature, Elliot wave theory can be used in any market that sees regular price action – like the foreign exchange market. Elliot claimed that all movements were made up of eight waves. In a currency pair experiencing a bullish trend, this would involve five advancing waves and then three corrective waves. In a pair experiencing a bearish trend, the order is reversed with five declining and three rising. The Elliot wave theory is said to work on all time scales, but applying it involves a lot of personal interpretation and dedicated practice.

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